So now that President Obama has given up on his campaign pledge of ending the Bush tax cuts on income over $250,000, what is Plan B? The first element of it is to negotiate some extension of all the tax cuts through 2012, ideally in return for something, though signaling their weakness has given the Democrats very little ability to ask for anything.

Beyond that, it seems to me that Obama has to hope he wins reelection (obviously) and then just plan on letting all the tax cuts die. He'll still probably have to campaign in 2012 on extending the middle-class tax cuts. But Republicans in Congress are still going to block any extension that doesn't provide a huge regressive tax cut -- for them, tax cuts on income under $250,000 are the price they have to pay in order to get the tax cuts for the top 1%, which is what they actually care about.

If Obama is reelected, he simply has to veto any extension of the upper-bracket tax cuts. If it means all the tax cuts die, so be it. Why, you might wonder, would he be willing to do that then but not now? Well, hopefully the economy will be in better shape. (If it isn't he probably won't be reelected anyway.) On top of that, canceling all the Bush tax cuts would have a real depressing effect on the economy, which in turn would also harm his reelection chances.

In sum, assuming he does win, he'll be in much stronger position on taxes two years from now. And it's worth keeping in mind that eliminating the Bush tax cuts would reduce the deficit by $4.6 trillion over ten years, considerably more than the $3.8 trillion that the Bowles-Simpson plan would save. And from a liberal perspective, restoring Clinton-era tax rates is a vastly better way to shore up the nation's finances than the Bowles-Simpson plan.

Obama and the Democrats blew a huge political opportunity by failing to pick a fight on the middle-class tax cuts. But they do have a chance to gain a long-term policy win.